Canada spawned a superstar during the global pandemic, which saved the TSX from posting a negative return in 2020. Shopify (TSX:SHOP), through its e-commerce platform, helped merchants flourish despite strict lockdowns and social distancing measures. The tech stock’s overall return was 184.7% compared to the TSX’s 2.2%-plus.
While Shopify faltered and lost 74.8% overall in 2022, it helped the TSX for the second time in 2023. With SHOP’s 124.4%-plus return, Canada’s primary stock market gained 8.1% amid rapidly rising interest rates.
As of this writing, Shopify trades at $74.56 per share and is on a losing streak. The former tech darling lost 32.3% in the last three months, declined 19.1% in one month, and is down 27.7% year-to-date. However, based on market analysts’ 12-month average ($107.97) and high ($137.61) price targets, the upside potential is 44.8% to 45.8%. But is Shopify a buying opportunity right now?
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Bargain price
Shopify rose to as high as $1,500 before the ten-for-one split in June 2022, but the share price has not been this low since its heyday. The $96.4 billion e-commerce company is confident the best is yet to come. For investors, the current share price is a bargain vis-à-vis the growth potential.
In Q1 2024, revenue rose 23% year-over-year to US$1.9 billion, although Shopify incurred a net loss of US$273 million compared to the US$68 million net income in Q1 2023. Still, its President and CEO, Harley Finkelstein, said, “You’re seeing the strongest version of Shopify in our history. Our outstanding Q1 performance is clear proof of our dedication to the new shape of Shopify.”
When adjusting for the disposition or sale of the logistics businesses, the year-on-year revenue growth is 29%, with a 12% free cash flow (FCF) margin. FCF ballooned nearly 63% to US$232 million from a year ago. The gross merchandise volume (GMV) and monthly recurring revenue increased 23% and 32% respectively to US$60.9 billion and US$151 million.
100-year company
Shopify is forward-looking and laser-focused on building for the long term and delivering growth and profitability. Finkelstein said, “We are building a 100-year company, and we will continue to remain fiercely agile, capitalizing on every opportunity that accelerates the success of our merchants, enables us to continue to build world-class products, and enhances operational efficiency for better returns.”
The company launched several new lending products for merchants to start the year, announced more new AI features, and invested an additional $260 million in Flexport, its global logistics platform. Finkelstein sees visible growth potential in Europe, where GMV growth is outpacing the North American market. Also, Shopify is significantly underpenetrated in the global retail sales market.
Huge e-commerce market size
According to Precedence Research, the statistics platform for market intelligence, the global e-commerce market size was US$16.3 trillion in 2023 and could reach US$18.8 trillion in 2024. The forecast from 2024 to 2033 is a compound annual growth rate (CAGR) of 15.2% or a projected market size of US$67.1 trillion.
For Shopify, Finkelstein said the company has identified a US$380-billion market opportunity in its core geographies. “We’ll continue to focus on the success we’ll see in Europe,” Finkelstein assured.
Compelling reasons
The bargain price, forward-looking plan, and enormous market opportunity are compelling reasons to take a position in Shopify today. Canada’s erstwhile tech superstar could save the TSX for the third time.
